While many people are aware that President Obama signed the Middle Class Tax Relief and Job Act on February 22, 2012 extending the payroll tax cut, few knew about a provision in that law which helps employer avoid layoffs. This provision is called the Layoff Prevention Act of 2012. This new law amends the Internal Revenue Code by creating the Short-Term Compensation Program.
This new program helps employers avoid layoffs during an economic downturn. The benefit to employers is the ability to keep employees who would otherwise be laid off and possibly find new employment before a possible recall. The benefit to the employees who would have been laid off is they get to remained employed. The employees who were not selected for layoff however, will suffer a reduction in compensation. Here’s how it works:
Instead of laying off some employees, the employer is empowered to reduce the hours worked by the workforce, or part of the workforce. Employees, whose hours are reduced by at least 10 percent, but not more than 60 percent, will not be disqualified from receiving unemployment insurance benefits. The employees whose hours are reduced would then receive a prorated share of the unemployment benefits to which they would have been entitled had they been totally laid off.
This program is completely voluntary for employers. There are several other requirements for implementing this program and employers should consult with their employment law counsel for guidance.
Note however, that if the employees are represented by a labor union, it does not appear that this statute will be applicable. Under federal labor law an employer whose employees are represented by a union will have to bargain with the union regarding a reduction in hours to avoid a layoff. Employers may want to consider negotiating a provision in future collective bargaining agreements to facilitate such a program.